BACKGROUND NOTE 9 - METHODOLOGICAL DETAILS OF MODELS USED FOR CHAPTER 4

Jul 19, 2026

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Background Note 9 documents methodological details for the analysis conducted in Chapter 4 of the Argentina CCDR. It explains how MFMod evolved into internet-based, global, and customized country-level forecasting systems, and describes MFMod’s macro-structural structure with identities and behavioral equations in an error-correction framework. The note also introduces the Climate Policy Assessment Tool (CPAT) and its capability to evaluate carbon pricing and fuel subsidy reforms, including emissions, fiscal and GDP effects, and co-benefits such as health and air pollution impacts.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages16

Reading Time40 min

AccessFree to download

Contents

MFMod

CPAT

Additional figures

Details of the carbon tax analysis

References

Pub lic Disclosure Authorized Pub lic Disclosure Authorized Pub lic Disclosure Authorized Pub lic Disclosure Authorized BACKGROUND NOTE 9. METHODOLOGICAL DETAILS OF MODELS USED FOR CHAPTER 4 November 3, 2022 Contents 1. MFMod .......................................................................................................................3 2. CPAT ...........................................................................................................................4 3. Additional figures .......................................................................................................6 4. Details of the carbon tax analysis.............................................................................. 7 5. References .............................................................................................................. 15 Background Note 9. Methodological details of models used for the analysis in chapter 4 of the Argentina CCDR Prepared by Sonia Araujo, Charles Jooste, Daniela Dborkin, and Paulina Estela Schulz Antipa 1. MFMod Over the years, the models used for forecasting have changed, as the World Bank’s macroeconomic and fiscal model (MFMod) introduced country-level forecasts in 2015. MFMod can be seen as a framework that comprising three main systems that share common elements. First, an Internet-based MFMod forecasting system which is used for the Bank’s regular Macro Poverty Outlook forecasts and country-level analysis, with separate models for 180 countries that share a common structure and functional forms but with country-specific parameters and extensions. Second, a Global MFMod macro model used for global and regional simulations, which is derived from the internet-based MFMod system, but solves as a global model and it is mainly used for regional and international policy and shock analysis (that is, COVID-19, Ukraine war scenarios) . Third, detailed and customized country level standalone models that are derived from the Internet-based MFMod System. These models are significant extensions and customizations of the standard MFMod model and allow for climate aware versions, which are one of the principal tool being used in the CCDR process. MFMod is a macro-structural model, comprising a large number of identities and independently estimated behavioral equations. Identities constitute a consistency framework with behavioral equations that seek to preproduce economic logic (that is, consumption responds to changes in permanent disposable income, imports rise when consumption demand or foreign prices decline relative to domestic) . Behavioral equations are estimated in an error-correction framework, with long run properties derived from economic theory but short-run (out-of-equilibrium) behavior largely data determined. MFMod has a well-defined supply-side, that endogenously determines a time-variant equilibrium level of activity, but explicitly allows activity to deviate from equilibrium. Equilibrium activity levels are determined from economic theory (principally neo-classical), out of equilibrium behavior is country-specific and reflects how the economy has behaved historically. The general model setup is described in Burns et al. (2019) . The MFMod standalone utilized in this CCDR was first developed for the project “Poverty and macroeconomic impacts of climate shocks in Argentina”(P172110), which objective was to analyze the economic effects of a drought in Argentina through an exogenous destruction of output in the agricultural sector. Two main features have been developed, a detailed sectoral structure and an explicit modeling of agricultural exports. The mapping of sectors to the rest of the model in the standard MFMod is not explicit and follows ad hoc adjustments reflecting shortcomings in data ([e.g. capital](e.g. capital) and labor by sector) . Unlike a computable general equilibrium (CGE) model that requires one year of data (typically a SAM), MFMod requires

FAQs

What is MFMod and what forecasting functions does it support in this CCDR context?

MFMod is the World Bank’s macroeconomic and fiscal modeling framework used for country-level forecasting and analysis, including internet-based country systems, a global macro model for simulations, and customized standalone country models for climate-aware versions.

How does CPAT support assessment of carbon pricing policy options?

CPAT helps evaluate costs, benefits, and co-benefits of carbon pricing scenarios and can test policy options related to fossil fuel subsidy reforms or carbon taxes. It outputs expected emission reductions, tax revenues, GDP impacts, and co-benefits such as air pollution and health improvements.

What methodological approach is used in MFMod’s behavioral equations?

MFMod uses behavioral equations estimated within an error-correction framework, combining long-run properties derived from economic theory with short-run behavior largely determined by data.

Jul 19, 2026

Upload by Noah